European Stability Initiative - ESI - 18 December 2017, 10:07
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State Aid

April 2007

The objective of state aid control in the EU is to ensure that government interventions do not distort competition and intra-community trade. State aid is defined as an advantage in any form conferred on a selective basis by public authorities. Subsidies granted to individuals or general measures open to all enterprises do not constitute state aid.* See website of DG competition.

Bulgaria was first confronted with this topic through the Europe Agreement from 1993 that came into force in 1995 whose article 64 related to state aid. Plamen Vassilev, today the head of the Ministry of Finance's state aid department, at that time worked as an expert in the international economy directorate, when his boss told him to get acquainted with article 64."This was something completely new for Bulgaria and for myself as well."* ESI interview with Plamen Vassilev, head of the state aid department in the Ministry of Finance, 27 October 2006. At the time, most of what the EU considers state aid was granted by the Ministry of Finance on discretionary terms, without rules and very non-transparently. Vassilev worked nearly one year on this issue before in October 1996 a state aid department was set up in the Ministry of Finance with the responsibility to apply article 64 of the Europe Agreement. Initially Vassilev was the only person in this department.

In 1996 the first state aid inventory was done (by an EC-financed hired consultant as domestic skills were still not available)."This was very difficult then. Nobody knew about it and many ministries tried to keep information to themselves. These were completely unknown topics."

The EC's Opinion on Bulgaria from 1997 stated:

"In the field of state aid, Bulgaria does not, at this stage, meet the requirements of a credible state aid control. No rules for the monitoring of state aid exist for the moment and the transparency required in the granting of state aid has not yet been achieved. It is therefore not possible to examine whether the state aid granted is compatible with the Community state aid rules."* EC, Commission Opinion on Bulgaria's Application for Membership of the European Union, 15 July 1997, p. 55.

Bulgaria has come a far way since then, but the beginnings were difficult. Vassilev explains: "In principle, state aid is forbidden, but there are hundreds of exceptions. It took a while to convince ministries in Sofia that this is important. They were saying that if it's forbidden, why should one deal with it."

In 1997 the Bulgarian authorities realised the need for a more serious structure. Vassilev was sent to trainings in Stockholm, London, Brussels, and Maastricht, where he saw how this works in practice in member states. More staff was hired and trained, with different experts being responsible for different aspects of state aid. By 1999, the department had five people, and a network was being built up: two contact persons in all 28 districts, in every ministry and some government agencies. Today the department has 8 people, and it is foreseen to hire another 4 in 2007.

Over the years the EC provided a lot of assistance. The department had four twinning projects, two smaller ones at the beginning and two bigger ones later on, together with the Commission for the Protection of Competition, the Bulgarian body entrusted with the control of competition as well as state aid. The EC financed computers in the department, the Commission for the Protection of Competition and in the 28 districts. Each year DG competition organises a "conference on state aid", where also the accession countries participate, obtaining first hand information about new developments.

In 2002 the State Aid Act was passed which now is the legal basis for the state aid department and the Commission for the Protection of Competition to act. From then onwards, the Ministry of Finance could write official letters to all donors of state aid and prepare serious annual reports. The fist inventory in 1996 had only covered classical subsidies, using data from the Ministry of Finance, but there are many other forms of state aid which were not covered then.

Since 2002 the department writes annual reports on state aid, following the same methodology as in the EU member states. The state aid inventory was very much improved from its inception in 1996. There is now a computerised state aid network, and all relevant areas are covered. The department is also issuing opinions on new legal acts in how far they are compatible with state aid rules. The eventual judgement on state aid issues is done by the Commission for the Protection of Competition (Komisia za zastita na konkurenciata), but after accession this power will be transferred to the EU.

The EC's Monitoring Report from 2005 comes to a very different conclusion than in 1997:

"Bulgaria is generally meeting the commitments and requirements arising from the accession negotiations in the fields of anti-trust and state aid, and is expected to be in a position to implement the acquis from accession."* EC, Bulgaria – 2005 Comprehensive Monitoring Report, 25 October 2005, p. 36.

The Stockholm European Council in 2001 had asked member states to demonstrate a downward trend in state aid in relation to GDP and to redirect aid towards horizontal objectives (environment, SME, employment aid and regional aid) versus sectoral aid (primarily aimed at manufacturing and coal).

Bulgaria today has one of the lowest rates of state aid both in absolute terms and as a share of GDP. With 0.36 percent it is considerably lower than in the new EU member states (1.35 percent) and even lower than in the old member states (0.45 percent). Although the share spent on horizontal measures is still below the old member states, it is nearly double of the average for new member states.

Table: State aid in Bulgaria and the EU, 2002-2004* EC, Report – State Aid Scoreboard. Spring 2006 Update, COM(2006) 130 final, 27 March 2006, pp. 11 and 13.
 

EU25

EU15

New MS

BG

State aid as % of GDP

0.49

0.45

1.35

0.36

State aid per capita (PPS), €

109

109

161

23

Horizontal objectives of total state aid (%)

68

n/a

23

45

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18 December 2017, 10:07